A new Bank of America report suggests that adopting generative AI could enhance corporate profits and significantly improve operating margins, despite existing challenges.
Survey Predicts Generative AI Could Significantly Boost Corporate Profits
In an environment rife with skepticism regarding the practical implementation of generative artificial intelligence (Gen AI) in the business sphere, a new report from Bank of America (BofA) suggests that the adoption of this technology could lead to substantial increases in corporate profits. This optimistic projection comes despite considerable challenges highlighted by firms such as Deloitte and Gartner.
The report, authored by Vanessa Cook and the BofA Global Research team, is titled “AI: From evolution to revolution?”. Their analysis indicates that transitioning from pilot projects to large-scale production could potentially enhance S&P operating margins by 200 basis points over the next five years. This margin boost translates to an estimated $55 billion in annual cost savings.
The survey, conducted in August, involved 130 equity research analysts from Bank of America, who cover a spectrum of over 3,400 companies across 25 sectors, including software, insurance, and the food and beverage industry. The results depict software industries as the potential top beneficiaries, anticipating a 5.2% increase in product margins due to enterprise-level Gen AI applications. Other sectors likely to experience significant benefits include semiconductors and energy, whereas sectors like healthcare equipment and telecommunications may face challenges resulting in deteriorating profit margins.
Notably, the report provides only a few granular details about where and how these cost savings will materialise. However, it does offer specific examples of organisations that have already reaped the benefits or are on the verge of doing so. Utilities companies, for example, could see a 75% reduction in pole inspection costs by deploying AI-powered smart cameras on fleet vehicles. Similarly, insurance firms might accelerate property underwriting processes by using AI to replace manual internet searches with automated aerial imagery and web scraping techniques.
An e-commerce service provider featured in the report is using an AI-powered customer service bot, eliminating the need for 700 human customer service agents, which could potentially increase profits by $40 million this year. Additionally, by utilising Gen AI applications to handle some marketing duties internally, the same provider has reduced its expenditure on external marketing agencies by 25% in the first quarter of 2024.
Despite these promising examples, the report cautions that significant infrastructural development will be necessary before these savings and profit enhancements can be universally realised. “Gen AI may catalyse an evolution in corporate efficiency, but app development and enterprise adoption will take time,” the authors state. They underscore the necessity for ongoing investments in infrastructure and advances in model development as prerequisites for truly transformative and revenue-generating Gen AI applications.
The BofA report advises investors not to overlook the potential of Gen AI’s cost-saving and revenue-generating capabilities, even if large-scale usage has yet to commence. This note of caution underscores the recurring theme that substantial upfront investments are required before tangible benefits become evident.
As the landscape of enterprise AI continues to evolve, the findings of this survey offer a glimmer of optimism amid widespread doubts. Still, until clearer evidence of broad-based cost savings and productivity enhancements is available, skepticism about the role and impact of generative AI within enterprises is likely to persist.
Source: Noah Wire Services
